Deals

Elliott vs. Korea, round 2

PUBLISHED :May 01, 2018 - 17:36

UPDATED :May 02, 2018 - 16:13

[THE INVESTOR] New York-based activist fund Elliott Management is once again on Korea’s case over the 2015 merger between Samsung C&T and Cheil Industries that it was opposed to from the beginning, but was unsuccessful in blocking via a proxy battle.

This time, Elliott has managed to secure a lot of ammo from developments within Korea, in particular, the government’s quasi-official denouncement of the deal.

“The government is calling the merger a crime. It would be strange if (Elliott) or any other foreign investor for that matter, didn’t raise issues of its own,” one legal source told the local press on May 1, requesting anonymity.

The government says officials and the National Pension Service --the second-largest shareholder in Samsung C&T -- went out of their way to facilitate the merger and help the Samsung owners transfer power to heir Lee Jae-yong who control Samsung via Samsung C&T.

Further helping Elliott’s case, the NPS has decided to sue those who it said “twisted its arms” to approve the merger. An independent counsel had previously concluded that the pension fund lost around 138.7 billion won (US$129.77 million) from the merger, but no evidence has been produced.

Local judges have already handed down sentences to the then Health Minister and then CIO for abusing their power on the issue and incurring damages. A final ruling is now pending at the Supreme Court.

Against such a backdrop, Elliott will initiate an Investor-State Dispute Settlement suit against Korea for losses it claims to have incurred from the 2015 merger. Elliott had held a 7.12 percent stake in Samsung C&T at the time. After the merger, it said it would sell most of its stake.

Sources say Elliott has now submitted a notice to the Korean Justice Ministry, asking if it would exercise intervention rights before it goes ahead with a settlement suit.

“The Korean government will unlikely exercise the rights, because intervention is basically just an offer to pay for damages,” said another industry source, requesting anonymity.

He added that the “government won’t go down without putting up a fight,” citing past instance with Lone Star, against which the government went straight for a lawsuit.